JPMorgan Remains Bullish on Tech Stocks Regaining Investor Favor: Cooling Positioning and Pullback in Valuations Leave Room for Upside

JPMorgan strategists believe tech stocks will regain some of the momentum lost since the end of the first half as positioning crowding eases, earnings remain strong, and valuations become more realistic, giving investors reason to re-engage with the sector. In a report published Monday, the team led by Mislav Matejka wrote that the pause in the rally over the past three months has left positioning cleaner and share prices less expensive, and combined with rising capital expenditure and sustained earnings strength, "should support investors re-engaging with the sector." Tech stocks are still the standout leaders in the S&P 500 this year, but the rally has cooled in recent months amid concerns that massive AI spending may not deliver the returns optimists assume. Within the tech sector, the Magnificent Seven's valuations are at their lowest level in a decade, while semiconductor stocks are emerging from a difficult stretchworsened by Anthropic's Dario Amodei and OpenAI's Sam Altman previously calling for a coordinated slowdown in advanced AI development. "We doubt there will ultimately be a meaningful slowdown, as the race remains existential and winner-takes-all," Matejka wrote. JPMorgan said that while the kind of gains seen in the first half are unlikely to repeat, opportunities remain. The Magnificent Seven's decade-low valuations are not a conclusion unique to JPMorgan. Data from Morgan Stanley Wealth Management's Global Investment Committee show that the Magnificent Seven's valuation premium relative to the other 493 stocks in the S&P 500 is currently just 10%, the lowest in more than a decade, even as the seven giants as a group still command an earnings growth advantage of about 45%. "By comparison, we think these hyperscalers now look downright cheap," Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a report. Take Nvidia, for example: its forward price-to-earnings ratio for the next 12 months is just 18.7x, compared with its historical average forward P/E of 36.9x. BofA Securities semiconductor analyst Vivek Arya reiterated a "Buy" rating, arguing that the current 18x forward P/E is at a seven-year low and represents an "excellent opportunity to add to positions." Matejka said renewed enthusiasm for tech stocks should boost the South Korean market, where Samsung Electronics and SK Hynix are both listed, and indirectly benefit emerging-market equities. "Given the massive tech weighting, better tech performance would clearly be a tailwind for the market," he said. "That said, we don't think it's essential, and the market may not need AI to outperform for it to keep rising."